CORPORATE FOCUS—Marketing Firm’s Stock Up In Spite of Mounting Losses

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Summary


Business:

Interactive marketing & direct marketing


Headquarters:

Van Nuys


CEO:

Ramy El-Batrawi


Market Cap:

$224.8 Dividend Yield: N/A*


Total Liabilities:

$64.6 million P/E Ratio: N/A*


Long-Term Debt:

$38.7 million

* GenesisIntermedia does not have any earnings and does not pay dividends.

Bloating technology infrastructure. Increasing losses. Unpredictable revenues. GenesisIntermedia Inc. has all the makings of a stock that should be lost in the Dumpster. But it’s on a roll.

The Van Nuys interactive and direct marketing company has seen its stock price soar since the first of the year. The price, adjusted for the 3-for-1 stock split instituted Feb. 15, went from less than $6 per share in early January to nearly $15 last week, above the previous 52-week high of $12.74 per share it hit on April 25.

“I think they’re on to something,” said Courtney Smith, president of investment management firm Courtney Smith & Co., and a shareholder. “They put a tremendous amount of capital into building infrastructure, and now they have to capitalize on that investment. If the investment is successful, it could be a billion-dollar company.”

Smith has been recommending Genesis-Intermedia stock during his recent appearances on various cable news programs, which has doubtlessly helped drive the share price.

The infrastructure investments that Smith referred to are mostly in Centerlinq, a network of mall-based computer kiosks that provide promotional content to consumers.

Centerlinq kiosks have been installed in 32 malls across the country, and they seem to be catching on with consumers.

The network of kiosks, which Genesis-Intermedia CEO Ramy El-Batrawi calls “the jewel of the company,” offers touch-screen access to the Internet and various interactive video advertising features. Each flat-screen display provides coupons, directories and touch-screen access to the Web sites of national advertisers.

Last year, the company spent $17 million on Centerlinq, up from $7 million in 1999. According to the company’s own estimates, the Centerlinq network receives 32 million “impressions” per month. (An impression refers to each time a kiosk user logs onto a particular site.)

Apparently, however, lots of impressions have not impressed advertisers. The network is not generating enough advertising revenue to be profitable. Nonetheless, GenesisIntermedia said it expects to spend $15 million to $20 million adding kiosks to malls over the next 18 months.

The company expects to continue investing in Centerlinq, and expects to incur losses on the network through 2001.

Competitors abound in the mall-based kiosk space, but few have developed a network as large as Centerlinq’s.

Besides being focused on Centerlinq, GenesisIntermedia also is involved in several other marketing and advertising businesses. It rents cars through Glendale subsidiary Car Rental Direct. It sells self-help videos on love, dieting and finance through infomercials and other media platforms.

Having tentacles in so many media platforms is another enticement to Smith.

“They have the potential for so many synergies between their core marketing platforms,” Smith said. “They’re really not utilizing their resources fully. They’ve been concentrating so much on expansion, not on consolidation of the power that they already have.”

However, El-Batrawi said he plans to keep expanding and acquiring.

How the company plans to finance that expansion is not clear. El-Batrawi said the company is currently negotiating with lenders to gain the additional financing.

The company reported a net loss of $16.8 million (82 cents per share) for the fourth quarter ended Dec. 31, compared to a net loss of $6.6 million (42 cents per share) in the like year-earlier quarter.

Its fourth quarter revenues were $10.1 million, down from $16.7 in the previous quarter ended Sept. 30 and up from $9 million in the like year-earlier quarter.

The company said it would file this week its financial results for the first quarter ended March 31.

The company stated in filings with the Securities and Exchange Commission that it expects earnings fluctuations to be even more dramatic in 2001 as it continues to expand.

Besides Smith’s nationally broadcast recommendations, another factor may be fueling investors’ interest in the stock.

Just as GenesisIntermedia stock got on its roll in mid-April, Saudi Arabian arms dealer Adnan Khashoggi increased his equity stake in the company from 33 percent to 44 percent through Bermuda-based Ultimate Holdings Ltd. He is perhaps best known for his role in helping to pay for the sale of arms by the United States in the 1985 Iran-Contra scandal.

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